Corrects dollar/yen quoteDollar hits 2-month low against euro

KateGibson

OsamuTsukimori

CHICAGO (CBS.MW) -- The dollar dropped to its lowest level in two months against the euro Thursday amid U.S. economic data that illustrated subdued inflation and interrupted consumer spending.

In late afternoon New York trading, the dollar was off 0.8 percent against the euro, at a two-month low of $1.2428.

The U.S. currency also declined against other key rivals.

Against the yen, the dollar traded at 109.93, down from 110.82.

The dollar dropped 1.1 percent against the Swiss currency, with one dollar fetching 1.2457 Swiss francs, and declined 0.7 percent against the British pound, at $1.8115.

The Commerce Department Thursday said a measure of consumer-price inflation held unchanged for a second consecutive month in August, reinforcing the Federal Reserve's judgment that inflation eased after a spike earlier in the year due to energy prices.

The personal consumption expenditure index is up 2.1 percent in the past year, down from an annualized 2.4 percent in July. The core consumption index remained at 1.4 percent for the second straight month.

In the same report, the government reported wage growth boosted U.S. personal incomes by 0.4 percent in August.

Real and nominal consumer spending was unchanged as spending on durable goods sank.

The dollar moved briefly higher after data pointing to expanding business activity in the Chicago region. The Chicago purchasing managers index rose to 61.3 from 57.3 percent in August. Read more. At the New York Mercantile Exchange, crude-oil futures tapped the $50-a-barrel mark in Thursday afternoon trade, with the November crude contract climbing as high as $50.10. Read Futures Movers. Economic data from Europe proved mixed.

Eurozone CPI dropped to a 5-month low of 2.2 percent year-over-year, supporting the "contention that the European Central Bank won't hike until mid-2005," wrote analysts at ABN AMRO.

A European Commission survey found economic sentiment in the eurozone lapsed to 11.7 in September after climbing to 100.9 the previous month.

Elsewhere, French unemployment increased to 9.9 percent in August, while households and businesses said they felt more confidence about the economy in September.

In Italy, business confidence declined in September after rising for two consecutive months.

In Asian trading overnight, the dollar initially rose as high as 111.26 yen, but fell back as the Nikkei 225 Stock Average climbed and energy prices eased, reducing fear about Japan's dependence on oil imports.

Thursday marked the end of fiscal half-year for Japanese companies, making it an active trading day, with investors locking in positions, said Mitsuru Sahara, vice president of forex dealing group at UFJ Bank in Tokyo.

"The dollar had declined for the past week amid concerns about a slowdown of Japan's economy ahead of Bank of Japan's tankan survey," said Sahara.

"The rise in crude oil prices, which temporarily hit above $50, also had increased yen selling positions against the dollar and other currencies. But some profit-taking took place at the last day of fiscal first-half and before the tankan."

The yen got support as the Nikkei average ended up 0.4 percent, breaking its worst losing streak since December 2002. See Asia Markets.

On Friday, the Bank of Japan's September tankan diffusion index for business conditions at large manufacturers is expected to show improvement to 23 points from a 13-year high of 22, according to the average forecast of 15 private-sector analysts surveyed by the Nihon Keizai Shimbun. The data is scheduled for release 10 minutes before Tokyo stock markets open.

Some investors sold yen this week to bet on, or hedge against, the possibility of a downside tankan surprise, traders said.

Japanese data released Thursday morning data showing industrial production rose 0.3 percent in August from July. The data was within expectations and didn't have much impact on currencies, Sahara said. See full story.

Friday also brings a meeting of financial leaders of Group of Seven industrialized nations in Washington, with China's attendance and oil concerns among the issues garnering attention. Read more.

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